Question Submit

Friday, June 24, 2005

Setting up Your Beginning Balance Sheet.


1. What is the proper way to record fixed assets (our building and land) that we already own when setting up QuickBooks?
2. Is there anyway to show appreciation of fixed assets?



When you set up quickbooks for a business that is alraedy in operation, it is important to get all the opening balances in correctly. This is why I usually advise clients to begin using quickbooks at the beginning of the year, then after I finish their tax return, I will set up the opening balances.

Having said that, on to your specific problem. Depending on which tax form you file (Sch. C, 1065, 1120, 1120-S, etc.) you may already have your opening balances. Look on your 2004 tax return (if you are anything besides a Schedule C) and look for a balance sheet. For smaller companies this is it may not be there. If it is there your set. You have your 12/31/2004 balance sheet. Make a general journal entry (Company - Make Journal Entry)DEBITING the assets and CREDITING the liabilities and equity (assuming none of the balances show up as negative) The tax returns balance sheet should include buildings and land, so this would take care of the problem.

Now if you don't have your a working balance sheet on your tax return, you can record your buildings and land by journal entry at COST. To make the journal entry, you would DEBIT Buildings or Land and CREDIT Opening Balance Equity.

As an aside, let me explain why I said put it in Opening Balance Equity instead of retained earnings where most would put it. See the first thing that your accountant is going to do when he gets your file, is to ensure that retained earnings balances (Previous years retained earnings +/- prior year profit/loss). I had you put it in opening balance equity so that he doesn't experiance additional confusion in performing this task.

The answer to your second question is simply don't do it. Fixed assets are recorded at cost and they remain on your books at cost until you sell them or dispose of them. It iswhen you sell them that you effectivly write down or appreciate those assets by recording a gain/loss on the sale of assets. This gain is a taxable item. Fortunatly, the government hasn't figured out how to tax us on unrealized let's not help them by quantifying the gain on our books.

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